Thank You, IBM

April 12, 2016
Brian Kelly

The IBM Corporation was run as a benevolent dictatorship through 1971. Thomas Watson Senior, and then Thomas Junior, ran IBM as if they owned it. They both had an entrepreneurial flair and few would deny that when they were in charge of IBM, they ran the company as if it were a sole proprietorship. They had many wonderful policies such as taking care of the people so that the people would take care of the business, and of course the classic: “Respect for the Individual.”

IBM believed in Wild Ducks and chairman Watson Junior wrote about them. He was not pleased with employees that would get so content that they were happy just to collect their paychecks. He wanted bold risk takers who put some skin in the game when they came to work.

I worked for IBM as a Systems Engineer in the last two years when chairman Watson Junior held the corporate reins. In contrast to later CEOs such as John Akers, most people in our office actually felt love in our hearts for the Watsons and the IBM family culture which they defined and lived by.

The Watsons cared deeply about the company and its people, and they hated to lose in anything. They wanted IBM to be the champion in all areas in which it competed. Watson Senior from 1914 to 1952 and Watson Junior afterward through 1971, were personally responsible for IBM’s massive success and huge cash hoard and major asset hoard (such as owned rental equipment). Vin Learson was the first non-Watson to be CEO. He held the very same philosophies as did the Watsons.

When Frank Cary took over as CEO in January 1973, it was left largely to him to set the agenda for the post-Watson era. In the same fashion that it typically takes a year or two when a great football coach is replaced by a poor or mediocre coach for the team record to go to hell, IBM did not fall apart with Cary. IBM had so much cash for so many years it could hide its management blunders. John Opel, the chairman after Cary, spent the cash.

Additionally, a pattern of excessive bureaucracy set in. This kept getting worse and worse and worse. IBM employees will tell you even today that they are aware of voice mail or phone mail police and some suggest even thought police within IBM, where more time is spent on minutia than sales objectives. IBM’s bureaucracy is not as concerned about doing it right but somehow it always has the time to do it again.

Tom Watson Junior had warned of a creeping bureaucracy and he fought against it and warned against it. Yet, less than 15 years after he ran the company, with its cash reserves and its rental base dwindling, IBM found itself with as many as 17 layers of management between the chairman and non-managerial employees. IBM managers were more interested in proving things to other managers, not in doing their jobs for customers or employees. Their personal careers mattered more than properly managing IBM employees or the success of the company. The altruism and the spirit of excellence taught by the Watsons disappeared quickly.

A decision table could have replaced the robots that ran the company. If it was profitable, stick with it; if not drop the line or the division. A simple decision tree would have made the same decisions as IBM’s top managers. The problems got worse. Opel spent all of IBM’s billions in cash reserves on plant capacity that was unneeded, and to pay for all the construction, he also sold off IBM’s rental inventory.

Akers had a tougher time making a buck in IBM’s normal businesses so he sold off Opel’s new plants and then he began to sell off whole IBM divisions until he found himself out on the street. IBM was just about bankrupt. Life quieted down a bit after when IBM brought in Lou Gerstner. IBM was way overstaffed and it was bad medicine but a necessary prescription for Gerstner to trim the work force. Even employees understood. Gerstner saved IBM from bankruptcy court after losing over $10 billion. He called an end to IBM selling off the heart of its business to make the monthly payroll. Unfortunately for IBM stockholders, both Sam Palmisano and Ginny Rometty have gone back to dissecting IBM parts to sell to opportunistic entrepreneurs.

Where did all IBM’s great architectures and products go?

During the Watson years and somewhat beyond, IBM was the technology leader and the business leader in the IT industry. IBM was creative and innovative. One division conducted basic research looking out 10 years into the future and another performed applied research looking five years out. IBM had a flow of innovation that never stopped. The IBM Company developed architectures and products to meet the needs of the future. But, the management robots did not like all of IBM’s business ventures other than the mainframe and had no qualms selling them off or permitting the technology to be stolen or pillaged, piece by piece, by entrepreneurial competitors.

Today’s cut-throat, high tech billionaires bought the pieces or stole ideas or simply ambushed IBM. They often used weapons against IBM that Big Blue had shared with them in one-way partnerships. It seemed that nobody was taking care of the business at IBM and so it was easy pickings for the entrepreneurial sharks. They had a feeding frenzy on Big Blue steaks. IBM’s bloated bureaucracy with managers afraid of their own shadows was no match for hungry companies that were run like sole proprietorships with little fat between the rubber and the road.

Thus, the title of my new book is Thank You IBM. It is a most appropriate title. It reflects the words left unsaid from this new business era and the new breed of win-at-all-costs entrepreneurs.

“Thank you IBM for being so inept.”

“Thank you IBM for your great architectures and your great products.”

“Thank you IBM for making it worthwhile to capture the essence of your company by your continual innovation.”

“Thank you IBM for permitting us to plunder your product line and even the results of R&D that you kept on the shelf for a rainy day.”

“Thank you IBM for making us all billionaires while your own business continues to flounder.”

“Thank you IBM for making it so easy.”

IBM is giving up on a product line was more often than not heralded by Wall Street as the company finally trimmed the fat. Yet, IBM was cutting out muscle and bone and sinew as it cut product line after product line. Often profits were down in those areas as the company managers had not protected its assets and the lines were already being plundered.

IBM’s top managers were so interested in keeping the status quo–the few safe havens that assured continued success–that it forgot about capitalizing on its massive innovation opportunities. IBM’s R&D structure could not help but continue to innovate some of the best ideas and products ever imaginable. But its marketing and management team were afraid to invest in keeping great ideas alive. IBM forgot how to sell.

At first burp, the milk-toast wimps in corporate marketing and management felt that they would be better rewarded for not implementing a new approach or product than if they moved ahead and gave it what it needed to succeed in the marketplace. This was exactly the opposite approach used by IBM’s more nimble competitors, who picked off IBM’s innovations one by one, without having to invest billions in R&D. They literally ate IBM’s lunch, and they also spent IBM’s lunch money.

IBM still manufacturers its own mainframes and Power Systems, but who knows how long this will last. Globalfoundries “bought” IBM’s chip business last year so Big Blue can still use Power chips and the z13 microprocessors for these machines. To convince Globalfoundries to take the chip line, IBM agreed to pay them over $1 billion per year. IBM now makes only the frame of the mainframe and it buys everything else. The “main” in mainframe is now made by somebody else.

IBM invented the disk drive in the 1950s and was the leader in disk technology until it decided not to compete. Richard Egan and Roger Marino of EMC became disk drive billionaires thanks to IBM. IBM invented the relational database but did not use it for a long time. Larry Ellison, one of the co-founders of Oracle, read IBM’s work on the subject and made products from it. Now, Ellison is the third richest person on the planet.

IBM invented the idea of computers talking to computers and perfected the technology. IBM even coined the term, “teleprocessing.” CEO John Chambers took Cisco Systems from a good company and pounded IBM to make Cisco a $49 billion great company, which has a year of revenue in the bank, which also made Chambers a billionaire. Chambers shared the wealth with others. Over 2,500 of Cisco’s 23,000 employees are millionaires or multimillionaires. IBM owned the networking business but did not know how to be successful. The board of directors at IBM should have fired more CEOs than John Akers.

I can go on and on and on, and I have not even mentioned Bill Gates, Steve Jobs, Gordon Moore, Michael Dell, and other high profile tech billionaires who also owe IBM a big thank you. They are all in the book and a lot more. Wait until you hear Bill Gates’ story in particular. I bought him a beer after a conference in which he spoke when he was just 31 years old. He was sharing his dreams about Windows. He is the richest person in the world today even after donating $30 billion of his personal wealth to charity. How much did he cost IBM?

I cover all the billionaires and multimillionaires in all the industries that IBM gave up in Thank you IBM.The second edition, which you can buy here, adds well over 100 pages and a new section about application software companies such as SAP and Amazon, and the billionaires from these companies and others. I hope you have enjoyed this introduction and I would most appreciate you bringing one of these books home to enjoy. You won’t be able to put it down.

Brian Kelly retired as an assistant professor in the Business Information Technology (BIT) program at Marywood University, where he also served as the IBM i and Midrange Systems technical advisor to the IT faculty. Kelly designed, developed, and taught many college and professional IT courses. He continues as a contributing technical editor to a number of industry magazines, including The Four Hundred and Four Hundred Guru. Kelly is a former IBM Senior Systems Engineer. His specialty was problem solving for customers as well as implementing advanced operating systems and software on client machines. Brian is the author of 63 books and hundreds of magazine articles. He has been a frequent speaker at IBM technical conferences throughout the United States. Kelly was a candidate for the U.S. Congress from Pennsylvania in 2010 and he ran for mayor in his home town of Wilkes-Barre in 2015.

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